IN 1912 American The Supreme Court ruled that a coalition of 14 railroad owners illegally stifled competition by using their joint ownership of a bridge spanning the Mississippi River near the St. Louis terminus. The intersection allowed the Rail Trust to choke off traffic in and out of the city’s main terminal. St. Louis is an important railroad hub. Thus, the court held that the monopoly over railroad bridges was a means of excluding business from rival railroad operators across the United States.
More than a century later, U.S. antitrust agencies are preparing for war with another giant in the online industry. In January, the Ministry of Justice (Ministry of Justice) laid out a 155-page complaint against Google’s monopoly on digital advertising on the exchange. It claims Google uses hardball tactics to lock down the ad tech business. The case has been billed as the biggest antitrust challenge the tech sector has faced since 2018. Ministry of JusticeThe epic battle with Microsoft in the late 1990s.
At the heart of the case is Google’s 2008 acquisition of DoubleClick, a marketing leader in digital advertising. Federal Trade Commission (Federal Trade Commission) should prevent merging. As if to make up for this laxity, antitrust agencies have recently tried to block a number of technology mergers, including Microsoft’s acquisition of video game maker Activision Blizzard.this Ministry of Justice is looking to spin off Google’s ad tech business — effectively canceling its merger with DoubleClick. However, it’s not clear that allowing the merger was actually a mistake.
To see why, start with a stylized view of Google’s ad technology “stack.” The middle layer is Google’s Ad Exchange, which matches buyers and sellers of ad space (or “inventory”). On one side of the market are website publishers who want to sell ad space. They submit sales requests through digital tools. The predecessor to Google’s seller software was DoubleClick for Publishers acquired in the merger. On the other side of the transaction are the ad buyers, who have two routes to the market. Agencies and large ad buyers use demand-side platforms to bid for inventory. Smaller advertisers go directly to Ad Exchange. Google’s traffic share ranges from 40% to over 90%, depending on the stage of the journey. In the split second between clicking on the website and displaying the ad, bids and offers are matched by complex algorithms.
In this case, the best initial question is a straightforward one: where is the bottleneck? Microsoft has been accused of bundling Windows, the main operating system for desktop computers, with Internet Explorer in an attempt to keep Netscape and others out of the Web browser market. The windows are the bottleneck, as the bridge to St. Louis was in the case of the railroad. The allegations against Google are more complicated, or at least a harder story to tell.monopoly place, in Ministry of JusticeWhat I said seems to have changed. First, it depends on Google’s strength in digital ad demand through its adjacent strength in search advertising. At other times, it’s the company’s grip on the supply side, bolstered by the DoubleClick acquisition. Still other times, the core of market power is the exchange. This shift may just be how foreclosures work in the digital marketplace.this Ministry of JusticeAntitrustists are certainly eager to present Google’s end-to-end presence in the ad tech stack as inherently sinister.
but? The profitability of the ad tech stack likely reflects the fact that it is more efficient under a single roof. The integration of publisher ad servers, exchanges, and demand-side platforms may lead to smoother data flow, better buyer-seller matching, and a smoother experience. There are also “network externalities” to consider. Advertising technology brings together different groups (advertisers, publishers and consumers). The more each type of client benefits, the more clients from other types: advertisers wanting a wide range of inventory; publishers wanting lots of bidders for their display space; and so on. In similar networks, it is not uncommon for a business to cater to all parties in the exchange. Think of a payment system, which has business relationships with both credit card users and merchants.
implicit in Ministry of Justice Case in point is the idea that the only route to much of the consumer market is through Google. Antitrust agencies like to define markets narrowly. The smaller the market, the bigger the leading companies. As far as businesses are concerned, businesses like to claim that good alternatives to their products are everywhere: Netflix’s boss once claimed that the company’s main competitor was “sleep.” It can be said that “open network display advertising sold through exchanges” is a unique industry because it has its own unique production technology. What’s less obvious is that it’s a market that’s really separate from digital advertising or plain old advertising.
back to the Future
it’s not obvious Federal Trade Commission Lax about allowing DoubleClick purchases. After all, the European Commission—not friends with American technology—allowed it after an in-depth investigation.However, there may be better options, says William Kovacic, a Federal Trade Commission Commissioner at the time of the merger, now a law professor at George Washington University. Instead of suing in court to block the merger and (possibly) lose, the agency could have held an internal administrative trial.This would have allowed officials Mr Kovacic said this was an opportunity to learn about the technology and update their practices. It may allow for remedial action, rather than unwinding the merger, and put Google in the spotlight. Allegations of “weak antitrust enforcement” fueling today’s hyperactive merger controls may not have taken hold yet.
It’s hardly water under a bridge. An epic court battle is about to take place. It seems odd that this corner of the ad business—almost a sideline to Google—would be at its center. But antitrust cases often hinge on vague details or arguments. After all, the Supreme Court ruling allowing the use of the St. Louis rail terminal is no stranger. ■
Read more from our economics column Free Exchange:
What would the perfect climate change lender look like? (February 23)
The Case for Global Optimism (February 16)
Google, Microsoft, and the Threat from Powerful Antitrust Authorities (February 9)
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